Today, after this morning’s announcement that Bunge (BG 71.50, -4.25 -5.6%) would acquire a 70% ownership interest in IOI Loders Croklaan from Malaysian-based IOI Corporation Berhad for $946 million, comprising €297 million and $595 million in cash, shares slide to near four-month lows. Bunge has entered into a $900 million, unsecured, delayed draw, three-year term loan agreement with Sumitomo Mitsui Banking Corporation, which may be used to finance the acquisition.
Before we delve into the deal, let’s take a quick look at BG. The White Plains-based agribusiness firm is basically a buyer, seller and transporter of oilseed and gain products; the company also produces fertilizer in South America.
Loders, on the other hand, makes its money in the growing $33 billion semi-specialty and specialty B2B oils market. Its portfolio includes the full range of palm and tropical oil-derived products with strength in confectionery, bakery and infant nutrition applications. Loders serves global food industry customers in more than 100 countries around the world and reported fiscal year 2016 revenues of $1.6 billion.
Now, as mentioned BG acquired a 70% ownership interest in IOI Loders Croklaan from IOI Corporation Berhad for $946 million, comprising €297 million and $595 million in cash. The two sides also expects the deal to be accretive, generating $105 million of EBITDA in 2018 on a stand-alone basis, plus the transaction is expected to result in $15 million in cost synergies in year one.
In year three, cost synergies are expected to total $45 million and revenue synergies are expected to be $35 million for a total of $80 million annually. Based on an enterprise value of $1.35 billion, the EV to 2018 EBITDA multiple is 12.9x, or 7.3x 2018 EBITDA when factoring in run-rate synergies. The transaction is expected to be accretive to earnings on a cash basis in the first 12 months post-closing, and by about 5% on a GAAP basis and about 7% on a cash basis by the end of year three.
In addition to strengthening BG’s Food & Ingredients business with a broader portfolio of value-added products, the transaction diversifies BG’s manufacturing and R&D network across core geographies. This includes establishing a stronger presence in fast-growing Southeast Asia.
Upon completion of the transaction, BG will have a 70% controlling ownership interest in Loders. IOI will retain a 30% ownership interest and customary protective rights. As part of the transaction, for a period of five years after closing, BG will have the right to purchase the remaining interest in Loders from IOI, and IOI will have the right to sell its interest to BG.